Money out of thin air

Back in 2000, the government held an auction for 3G spectrum licences. High hopes were held of aggressive bidding. To say that these hopes were fulfilled is an understatement – the auction raised an astonishing £22.5 billion, far in excess of the anticipated amount. In Germany, a similar auction provided even greater revenues, with bidders paying around £30 billion for the licenses. So far, the successful telecom companies have not recouped these massive investments, but the British and German Treasuries were very happy indeed with their windfall proceeds.

A further auction of unlicensed spectrums has been planned for some time, but this has been the subject of considerable delay. It is now scheduled for the second half of 2011. Two sections of bandwidth will be offered. First, the 800 MHz component has become available thanks to the switch from analogue to digital TV. Secondly, the 2,600 MHz component is being made available and is strong in urban environments.

In the run-up to the auction, there have been disagreements on several fronts. In particular, final decisions have to be reached about both the dominant role of Everything Everywhere – the UK joint venture of the French-owned Orange and the German-owned T-Mobile – and the status of the existing 2G spectrum holders. The four leading UK mobile telecoms operators – the Spanish-owned O2, Vodafone, Everything Everywhere and Three – have very different views on the planned spectrum auction and how the contentious issues should be resolved. But these issues should not be allowed to delay the auction – even ignoring the revenue windfall that the auction would bring, the availability of additional wireless spectrums would increase competition in the marketplace and benefit consumers.

It is not possible to project with any certainty the level of proceeds. But in Germany a similar – though far from identical – auction recently took place, which raised around £3.5 billion. Holding a spectrum auction now would help to pay off the national debt and increase competition in the wireless market.